The changing face of large format retail

Victoria,
29 January 2015 –A
growing number of non-traditional retailers are entering the large format
retail space, according to a new CBRE report that cites Victorian planning
reform and population growth as two of the key drivers.

CBRE’s latest ViewPoint
report shows that retailers are realising the affordability and benefits of an
outlet in a large format retail centre, causing an increase in the supply of this
type of product and favourable conditions for landlords.

The
Traditional Environment

Large
format retail has traditionally been perceived as a destination shopping experience
where shoppers travel further for less frequent purchases such as whitegoods
and furniture. Consequently, this asset class has seen lower volumes of foot
traffic and lower rents compare​d to shopping centres.

CBRE’s
report has found that with shopping centre rents on the rise, retailers are now
looking elsewhere, and large format retail centres are beginning to welcome a
variety of other retailers.

Where are we now?

The entrance of
non-traditional retailers is helping improving sales in large format centres,
increasing centre demand, and having a positive effect on vacancy levels. It is
estimated that the number of operating centres in Australia has increased from
134 in 2009 to 203 in 2013/2014, representing a 51% increase. Additionally,
large format retail sales for the financial year ended 30th June 2014 are
estimated to make up 20.1% of all retail sales. Regional shopping centre rents
have also increased steadily over this time from approximately $930 per sqm in
1999 to over $1,560 per sqm in 2014, representing a 45% increase.

Despite both
categories experiencing similar levels of growth, large format retail remains a
more affordable option for retailers. These affordable rents have also
encouraged the entrance of retailers such as pet goods, sporting goods, 24 hour
gyms and supermarkets, which have typically been found in shopping centres but
have not had a presence in the large format sector.

Case
Study: Pet Retailers

Pet
specialist groups have been aggressively growing their footprint in many
centres across Australia. In 2011, 14 pet retailers were operating in large
format retail centres in Victoria. Three years on, this figure has almost
doubled with 27 in operation. Recent studies have found that pet owners are
investing more in premium pet products as disposable income rises, and the
purchase of premium products is seeing owners travel to specialist retailers,
as opposed to the traditional supermarket. As Australia's population rises,
along with household income, it is likely that pet ownership will continue to
increase, strengthening demand for these products.

​Where will growth occur in Victoria?

In
Victoria, the Southern regions are expected to have the highest levels of
population at over 1.1million in 2018 and over 1.2 million in 2023. The Central
region is expected to increase at the highest rate, at 4%. Given the scarcity
of land in this region, it’s unlikely a new centre would be feasible.
Meanwhile, the West and South East regions will grow
at 3%. With
few centres in these areas in relation to expected population growth, it
appears possible to accommodate further supply. Larger
residential catchments should strengthen demand for gyms, dining and pet
retailers with shoppers closer to the large format retail centres and encourage
more frequent visitation.

Planning
Reforms

Tenancy
mix changes within large format retail centres can be in part attributed to
zoning amendments, key among them the July 2013 reforms to Victoria’s planning
zones, which created flexibility in the planning system for retail development
across the country. The Large Format Retail Association highlights that changes
in Victoria are reducing the amount of regulation and involve the removal of
restrictions while creating an increase in the supply of land for retail
development and use.

Philippa Bordonaro, CBRE Research Analyst said; “The changes to Victorian Planning Laws have driven a greater
diversity of uses and encourage more retailers to centres. The removal of floor
space restrictions has allowed smaller tenancies to exist, which has seen the
entrance of a number of supermarkets and other food outlets and had positive impacts on retail vacancy. The
relaxing of the definition of a bulky goods retailer has also allowed more
retailers to occupy space within a homemaker centre.”

Chris Parry​, CBRE’s Head of Large Format Retail said; “CBRE stalled work on the Mentone
Centre post the GFC, due to poor confidence in the sector and the viability of
large number of businesses. Following planning reforms, we have struck deals
with Aldi Supermarket, Petbarn, Tasman Meats and Amart Sports which previously
would have been prohibited or difficult to get approvals for. The centre is a
32,000sqm development anchored by the largest single level Bunnings in
Australia.”

Outlook

Population increases around
large format retail centres should strengthen retailer demand for space, which
may lead to rental growth and cause large format retail centres to evolve.

As the pool of potential
tenants increases with the entrance of non-traditional retailers, it is likely
that vacancies will remain low. Non-traditional retailers should continue to
favour large format retail over shopping centre locations, as the rental gap
between the asset class​es grows.

Victorian planning reform is
also driving diversification, and CBRE expects that new centres opening across
Victoria will embrace a wide mix of retailers assisted by these reforms.

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